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Practice mode Monetary Union

Which of the following is NOT an argument in favour of the UK joining EMU?

Correct answer B. The characteristics of the UK housing market make UK consumers’ expenditure very sensitive to changes in interest rates

Explanation

Because many UK mortgages track interest rates, UK spending reacts strongly to rate changes, which makes a one-size-fits-all euro rate riskier and argues against joining.

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Question 01 Monetary Union

Which of these events would NOT count as an asymmetric macroeconomic shock?

Correct answer B. A sudden and substantial rise in prices on the world oil market

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Question 02 Monetary Union

Which of the following is NOT a characteristic that reduces the cost of adopting a single currency?

Correct answer A. A high degree of trade integration among the countries of the common currency area

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Question 03 Monetary Union

What is meant by fiscal federalism?

Correct answer C. A fiscal system for a group of countries involving a common fiscal budget and a system of taxes and fiscal transfers across countries

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Question 04 Monetary Union

What problem does fiscal policy face in a currency union?

Correct answer B. Governments of the member countries of the currency union may run large budget deficits and so impose costs on other countries by pushing up interest rates on the bonds these countries’ governments issue

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